On a Saturday morning in late 2001, IT workers at The Seattle Times were busy moving a news bureau to a new location when disaster struck: They dropped the PBX.
“It crashed and burned, and we had no replacement,” says Thomas Dunkerley, IT communications manager for the company.
Dunkerley’s group, however, was concurrently installing a new IP PBX at its headquarters, and a light bulb went off. The company already had a T-1 line from headquarters to the new bureau site. “We looked at the T-1, looked at the new voice-over-IP system and thought, isn’t this what VoIP is supposed to do?” Dunkerley says.
Within four hours his crew had installed a router, a DSU and an Ethernet switch in the bureau and hooked up the other end to the IP PBX. “We had full phone connectivity to the office at virtually no cost,” he says.
On Monday morning, Dunkerley sat in his office, waiting for the inevitable phone calls from bureau users, wondering how to deal with the new phones on their desks. The calls never came. He called the office manager, who said everyone was getting along just fine. The manager declined Dunkerley’s offer of user training – no need, as the phones were quite intuitive. “In two-and-a-half years, no one has ever asked us for user training.”
“That incident alone, if we look at the downtime that office would have suffered, probably paid for the VoIP installation,” he says, noting it would’ve taken a week and a half at best to get a new PBX installed.
Finding the ROI
Extending phone services to new locations is one of the biggest returns that users report on their IP telephony investments – even when they don’t drop a PBX in the process. Other ROI gains include savings from simplified moves, adds and changes, lower cabling costs, toll bypass and, as Dunkerley’s experience illustrates, reduced end-user support expenses. Savings can be had on the end-user side, too, although they generally stem from improved productivity and thus can be difficult to accurately document. Small and midsize businesses generally will have an easier time making the ROI case because they are less likely to have numerous PBXs that need amortizing before making the switch to IP voice. And the savings they can get from reduced WAN voice charges are likely to be proportionately more than for larger companies, which can already drive such hard bargains on voice services that any savings from VoIP are negligible.
Savings from reduced moves, adds and changes is probably the benefit touted most loudly – with good reason, according to Johna Till Johnson, president of Nemertes Research and a Network World columnist. A Nemertes survey of 100 companies with average IT budgets of $10 million or more shows that employees move an average of .87 times per year – or almost once every year – at a cost of $100 per move. For a company with 1,200 employees, that amounts to $104,400 in annual costs that literally go away with IP telephony because users can move their own phones.
In a similar survey of 100 IP telephony users, Sage Research found the ability to easily change location benefited not only IT departments, but also end users. IP telephony makes it easy for companies to pull team members together for the duration of a project and then relocate them for the next project. In fact, 71% of respondents to the Sage survey said IP telephony let employees relocate more frequently – an average of three additional moves per year. “The degree to which people are mobile within the building is astounding,” says Kathryn Korostoff, president of Sage.
Dunkerley says he saves “days per move.” The actual time spent on a move typically is spread out over several days, from the time the initial request is made to when the technician actually fulfills it. He figures each move costs between $90 and $120 and that 25% of the employees in his company move each year, for about 250 moves per year, which saves him $22,500 to $30,000 per year.
The greenfield difference
Aaron Branham, vice president of operations for Monster Worldwide in Maynard, Mass., which owns the Monster.com recruitment Web site, says he’s seen similar benefits from moves, adds and changes at a new location in Australia that was outfitted with IP telephony gear.
Because the Australian site was new, with no incumbent PBX to replace, it was easy to make the case for VoIP. “The price points are there, as well as the reliability, ease of setup and the ability to move people around,” Branham says. By installing all Cisco IP telephony equipment the company cut in half the amount of cabling it needed. Most of its IP phones have two ports – one to connect to the network, the other to a PC, so you could get by with just one cable drop in each cube. “But most people put in two,” he says, “because you never know.”
It’s far more difficult to make the case for VoIP in offices that already have PBXs. Monster has grown in part through acquisitions, so it has PBXs from multiple vendors.
“The PBX vendors don’t want you to use another provider so they are very aggressive on the pricing, which makes it difficult to standardize on a single vendor’s VoIP implementation,” Branham says.
He is speaking from experience because Monster has two more VoIP implementations, including a beta version of a Nortel IP PBX that serves an IT development group split between Maynard and Prague in the Czech Republic, and an Avaya IP PBX that supports call centers in Maynard and Indianapolis. The two can communicate with each other, but “the interoperability between the two is a private ISDN link, not VoIP,” he says. “And that’s not uncommon. You get converted to the PSTN as your lowest common denominator.”
Further complicating the effort to standardize on one VoIP implementation is the need to fully depreciate PBXs, which often are capitalized over 10 years.
“It depends on where you are in the life cycle. Sometimes you’re going to have to wait five or six years before you can even start trying to make a case to swap it out,” Branham says.
Mining voice savings
Another development that’s making it more difficult to justify VoIP is that voice service costs have been dropping consistently for several years. At one time companies envisioned using VoIP for off-net calls by routing them to network edge points close to destinations and then dumping them into the PSTN. “We looked at that but just couldn’t make the numbers work,” Branham says. “When people started a few years ago, voice was 5, 7 or 10 cents per minute. Now it’s down to a penny or two.”
There are, of course, exceptions to the rule, namely for smaller businesses that can’t get bargain-basement voice rates. BeyondSoft, a software service provider in Beijing, uses a VoIP appliance from Zultys Technologies in its headquarters for internal communications, mainly among project managers and technical personnel, says Roger Zhang, technical director for the firm. His plan is to install additional Zultys units in countries where the company does business, such as Japan and the U.S., and to carry voice calls over the Internet. Zhang figures the strategy will save him 50% or more vs. the PSTN.
Nevada County, Calif., a rural area in the northeast part of the state, currently has about 1,000 phones on its VoIP network spread across nine sites, with two more to be outfitted by July 1, says Bill Miller, desktop services manager for the county. By connecting to a state ATM network and running IP voice to Sacramento, he figures he can save more than 60% on calls to the 916 area code, or about $7,200 per year. He also plans to tie in Sierra County to his VoIP network via a
T-1, letting users there save on calls to locations that the Nevada County network serves. “The state of California is virtually broke, so we get creative, especially in the rural areas,” Miller says.
Simplified support
Like other VoIP users, Miller also realizes IT savings in the form of simplified support. The Siemens PBX that his 3Com VoIP equipment replaced was so old that “we could only get parts at a virtual junkyard,” he says. The county performed maintenance in-house, calling in contractors as necessary, at a total cost of about $200,000 per year – $50,000 in hardware and $150,000 in labor. Labor costs with the VoIP system are only about $50,000 per year and hardware runs $15,000 (with none in the first year, when the system was under warranty). That comes out to an average savings of $140,000 per year in the three years the system has been operational.
Another plus for Miller: It’s easier to find data network help than telecom expertise. “My PC guys didn’t want anything to do with the legacy telephone system, but now because the telephone is an IP device, they’re interested. I went from one technician on the telecom side to eight ‘telecom’ technicians.”
The distributed nature of IP telephony systems also leads to IT savings, says Tom Valovic, program director for IP telephony at IDC. “In the case of an IP PBX, you can have a centralized system with distributed media gateways, and you don’t have to send someone physically to each location to upgrade software as you did with traditional PBX systems.”
As The Seattle Times case shows, IP PBXs also require less equipment at each remote site. And end-user support costs are reduced dramatically because phone features are generally more intuitive, with simple one-button commands for features such as call hold, forward and conferencing.
“With legacy systems, people often said they had a PBX with 200 features, but were lucky to get people to use voice mail correctly,” Korostoff says. Now users are starting to employ advanced follow-me features.
Improving productivity
Many of the productivity benefits from IP convergence are difficult to quantify. Savings related to features such as unified messaging, which lets users receive voice mail messages in their e-mail in-boxes (and the reverse in some cases), have a clear ROI, Valovic says.
“It’s directly related to the allocation of employee time and availability. That’s a pretty straightforward proposition,” he says.
The stickier ROI calculations, Valovic says, involve the collaborative features of converged applications that, for example, let a team work together more effectively – perhaps with online whiteboards, videoconferencing, instant messaging and presence technology that makes it easier to bring a group together on short notice.
Whether such productivity gains are even measured varies widely by vertical industry, Nemertes’ Johnson says, or whether the gain can be calculated as being delivered solely by IP telephony features.
Sales is an example where IP telephony features such as follow-me and presence clearly have a positive effect. Johnson gives the example of a salesperson armed with a BlackBerry device at a client site. The client asks a question the salesperson can’t answer. Rather than promise to follow up later, the salesperson can “see” an engineer is at his desk who likely will know the answer. He dials the engineer or sends an instant message asking him to join a conference call. “We call that just-in-time fetch the expert,” Johnson says. “Either it makes a sale more likely to close, increases your close rate or reduces the sales cycle so one salesperson can close more deals.”
The Seattle Times’ Dunkerley agrees that unified messaging and other applications have “certainly” improved productivity, but hasn’t crunched the numbers to prove it – although not for lack of trying, noting consultants have tried to come up with ROI figures. “They had very complex formulas, with constant measurements of how much time was spent doing different tasks,” he says. “It was just too much for us. It would’ve been a laboratory experiment.”
Desmond is president of PDEdit in Framingham, Mass. (www.pdedit.com).
